Corruption_risks_and_mitigating_approaches_in_climate_finance_2016

U4 Expert Answer Corruption risks and mitigating approaches in climate finance Query What evidence exists on corruption risks particular to climate finance, and what is the current evidence base on effective corruption mitigation approaches? Purpose Summary We want to ensure that our climate finance is in There are major integrity and corruption keeping with good practice on managing challenges associated with climate finance. The corruption risks, both in terms of our own bilateral huge amounts of money flowing from public and programmes and our contributions to larger funds. private sources, disbursed by international Our particular interest is in adaptation finance. donors, national governments and local actors often lack adequate transparency and Content accountability mechanisms, with little information available concerning how these funds are spent, 1. State of research on corruption risks in how they are generated and to what end. climate finance The main corruption risks related to climate 2. Evidence of corruption in climate finance and finance vary according to the phase of the programming process: undue lobbying and conflict of interest are more of a risk at the policy development and 3. Emerging good practice for mitigating project approval stage, while bribery, nepotism, corruption risks in climate finance and embezzlement are the main risks at the execution stage of mitigation and adaptation 4. References projects. Caveats Increased oversight and third party monitoring of policy and project development would mitigate This query response is largely based on a corruption risks at the planning stage, while previous response from 2014: Corruption risks greater expenditure monitoring, redress and mitigating approaches in climate finance. The mechanisms and increased transparency would purpose of this response is to elaborate on new decrease corruption risks in the project developments and provide recent evidence of implementation phase. effective corruption mitigation approaches. Author(s): Iñaki Albisu Ardigó, Transparency International, [email protected] Reviewed by: Leah Good, Lisa Ann Elges PhD, Brice Boehmer, Transparency International, [email protected] Date: 25 August 2016 Number: 2016:13 U4 is a resource centre for development practitioners who wish to effectively address corruption challenges in their work. Expert Answers are produced by the U4 Helpdesk – operated by Transparency International – as quick responses to operational and policy questions from U4 Partner Agency staff.

Corruption risks and mitigating approaches climate finance Although there is limited empirical research on action, creating an enabling environment and corruption risks in climate finance, there are a building capacity in support of adaptation and growing number of studies on climate finance mitigation as well as encouraging research, flows and the execution of adaptation and climate development, and deployment of new change mitigation projects. Promising technologies.” (World Bank 2010). developments related to the transparency framework of the Paris Agreement suggest there According to the UNFCCC (2016b), this refers to will be an increased focus on international and “local, national or transnational financing, which national accountability in climate finance, action may be drawn from public, private and alternative and results in the coming years. sources of financing.” Considering the expansive nature of this definition, evidence of corruption 1. State of research on corruption within climate finance is hard to quantify and risks in climate finance equally challenging to conceptualise. While 74% of the US$391 billion global climate While numerous reports and studies have looked finance budget is raised and spent in the same at evidence of corruption in fields related to country (Climate Policy Initiative 2015), climate climate finance, such as energy, water, forestry, finance is also a rapidly expanding field in waste or construction, such corruption risks are international development. Leaders of developed generally considered from a “sectoral” countries have pledged to leverage up to US$100 perspective, rather than in terms of the linkages billion in climate finance per year by 2020 (Dagnet with climate finance. et al. 2015). Current rates of disbursement are considerably lower; a study commissioned by the Indeed, the kinds of sectors in which climate French and Peruvian Governments in their finance investments are made are considered to capacities as presidents of COP21 and 20 be particularly vulnerable to corruption. World respectively concluded that US$62 billion in public Bank working papers estimate, for instance, that and private sources were directed from developed corruption in the construction and infrastructure countries to developing countries in 2014 industries accounts for anywhere between 5% to (Nakhooda et al. 2015). However, following the 20% of the total costs in developing countries Paris Agreement at the Conference of Parties (Kenny 2006; Kenny 2007). (COP21) to the UN Convention on Climate Change (UNFCCC) in late 2015, investment in Despite the growing number of civil society climate action is set to increase as countries organisations dealing with climate change, worldwide aim to meet adaptation and mitigation empirical academic evidence documenting targets laid out in their Nationally Determined corruption associated with climate finance Contributions (NDCs) (UNFCCC 2016a). governance remains limited. According to an estimate by Climate Funds Update (2016), the UK’s US$6 billion International Nonetheless, in the last few years, several studies Climate Fund makes it currently the largest and reports have identified a number of factors bilateral donor in climate finance. that make climate funds especially vulnerable to corruption (UNDP 2011; Transparency Climate money can be invested in both mitigation International 2011; Werksman 2010; Forstater and adaptation programmes. Mitigation strategies and Rank 2012; Transparency International 2014; aim to curb global warming, for example, through Terpstra et al. 2015; Peterson Carvalho & investments in renewable energy, clean transport Terpstra 2015). These are considered in the or reforestation projects (United Nations following section. Environment Programme 2016). Adaptation refers to interventions aimed at reducing the impact of Scale and nature of climate finance climate change, such as major investments in large infrastructure projects like sea walls, flood Scale of money flows defences, irrigation systems or emergency shelters (Victorian Centre for Climate Change Risks of corruption are likely to be exacerbated by Adaptation Research 2016). the huge amounts of money flowing through new and relatively untested mechanisms and financial The World Bank defines climate finance as “the markets (UNDP 2011). Risks are also likely to be resources to catalyse the climate-smart greater as recipient countries often have weak transformation of development trajectories by institutions and governance frameworks, low covering the additional costs and risks of climate absorptive capacity and poor institutional records for public accountability (Transparency www.U4.no U4 EXPERT ANSWER 2

Corruption risks and mitigating approaches climate finance International 2011), meaning that once these reporting and providing effective oversight of funds are received there are fewer chances of climate change investments. them being tracked and their expenditure monitored. Adaptation finance are funds designed to prepare countries for the negative effects of climate The scale of the governance and oversight change so as to prevent further damage to challenge is vast, especially in light of new populations and property. There is little consensus commitments made at the 2015 Conference of among donors, academics and beneficiary Parties (COP21), which include overhauls of countries about which expenditures can be energy infrastructure and additional investments classified as adaptation expenditures: some in renewables and energy efficiency measures donors consider basic disaster preparedness estimated at US$16.5 trillion through to 2030 infrastructure (like dykes, sea walls and drought (Schloss 2016). preparedness irrigation), while others would also include climate education, drought/flood resistant Pressure to disburse crops and waste management services as adaptation expenditures (Pickering et al. 2013). The urgency of climate spending puts actors under pressure to disburse funds quickly, leading While there has been relative overall improvement to increased flows over a short period of time, with of monitoring, reporting and verification related to pressure to demonstrate impact and success climate investments since the COP17 and stories. This may create the wrong incentives for COP19, monitoring and reporting continues to be donors, undermine the effectiveness of projects enforced more stringently in developed countries, and increase vulnerability to corruption. Increased while there are notable gaps in developing pressure to fast-track climate spending can countries (Dagnet et al. 2015). A positive measure exacerbate underlying corruption risks (UNDP with the potential to facilitate climate finance 2011; Transparency International 2011). tracking in developing countries is the International Aid Transparency Initiative. The Fragmentation of climate finance Adaptation Fund was adopted by the initiative in 2014 and provides annual information with the There is an increase in the number and diversity aim of improving the quality of data it publishes of funding sources from both public and private (International Aid Transparency Initiative & origins, which often overlap in nature, purpose Development Initiatives 2015). and governance. Delivery mechanisms are varied and increasingly complex, and may include loans, Challenges in definition and measurement grants, repayable assistance, guarantees, equity or other financial instruments (Green Climate There is a need to develop a system to measure, Fund 2015). report on and verify the relevant financial flows across a variety of sources, with a view to There is also wide divergence in the governance assessing whether targets are met (Buchner et al. of these funds, with different standards and 2011). However, the lack of a common practices, and varying levels of transparency and internationally agreed-upon definition of what coordination between them (UNDP 2011). constitutes climate finance is real a barrier to the Diverging anti-corruption standards among donors development of a common basis and may send mixed messages to recipient countries methodology for tracking, measuring and and undermine the anti-corruption agenda. A lack reporting on climate finance. of governance standards within private sector initiatives (PSIs) also contributes to the complexity The UNFCCC Standing Committee on Finance is of international climate finance. A 2015 study of meant to be the main oversight organism for 101 private sector initiatives to mitigate climate climate finance. Since 2012, it requires recipient change showed that only 8% of PSIs provided countries to provide information, by way of update information about project costs; it found that reports, on the funds received from the Global information about how the finance was raised, Environment Facility, bilateral donors, the Green delivered, used and monitored was largely absent Climate Fund, as well as multilateral institutions in all the case studies reviewed (Pauw et al. “for activities relating to climate change, including 2015). support for the preparation of their Biennial Update Reports” (Adaptation Watch 2015). There is also fragmentation and overlap between However, the absence of international standards development and climate change adaptation and and tracking guidelines means there are mitigation activities, which creates some substantial differences in the amounts, frequency confusion and challenges in terms of tracking, www.U4.no U4 EXPERT ANSWER 3

Corruption risks and mitigating approaches climate finance and types of funds that are reported, creating Furthermore, differing levels of fiscal transparency significant methodological complications when it and diverse procedures for marking and labelling comes to identifying whether countries have met of climate-related co-financing provided by their pledged commitments (Dagnet et al. 2015). national governments to “match” international contributions also provide a challenge in efforts to The UNFCCC standing committee has recognised track this funding. For example, some countries in this, admitting that it “encountered challenges in sub-Saharan Africa, such as Tanzania, Ethiopia, collecting, aggregating and analysing information and Uganda, do not have the same disclosure from diverse sources…each of these sources obligations for extra-budgetary climate finance or uses its own definition of climate finance and its international donations ear-marked for climate own systems and methodologies for reporting.” It mitigation or adaptation, making tracking of further noted that the “wide range of delivery commitments difficult (Bird 2014). channels and instruments used for climate finance also poses a challenge in quantifying and There has been a drive to develop comprehensive assessing finance” (Adaptation Watch 2015). databases to quantify climate finance. The Heinrich Boell Stifting together with the Overseas Even where there have been attempts at creating Development Institute has developed an overview an international standard, such as the Climate accessible on the website Change Adaptation statistical markers introduced www.ClimateFundsUpdate.org. For a by the OECD in 2010 (OECD 2011), the results comprehensive list of databases, please see the have been questionable. A study by Jughans and U4 Anti-Corruption Resource Centre’s 2015 Harmeling (cited in Adaptation Watch 2015) International Standards and Best Practices for Aid assessing the credibility of the adaptation marker Flows, Revenue Transfers, and NRM. system concluded “that roughly 65% of all activities reported as adaptation were unrelated or Beyond measurement issues regarding the lacked a rationale for listing adaptation as a monetary dimension of climate finance, the principal or significant objective”. Similarly, a assessment of results, especially in mitigation another study (Adaptation Watch 2015) found that finance, is difficult due to the sophistication of of 5,201 OECD member country projects climate networks and technologies. Moreover, considered to have climate as a “significant given the global nature of the problem and the objective” under the adaptation marker system, likely delayed impact of mitigation interventions, it 70% were not clearly related or lacked adequate can be hard to evaluate results on a national or information. A study on adaptation funding in even regional basis within project lifecycles Nepal found that less than half of funding listed as (Cooper & Pearce 2011. adaptation related corresponded fully or partially to adaptation activities (Baral & Chhetri 2014). Specific risks associated with various disbursement mechanisms While climate finance is supposed to be additional to and above official development assistance There are specific risks associated with various (ODA) targets, contributions to adaptation are spending mechanisms such as loans, grants, often reported as ODA and vice versa, and are sector-wide approaches or budget support. In a likely to be double counted in the absence of 2010 paper, Jakob Werksman from World adequate guidance (Klein 2011). Funding Resources Institute (WRI) stresses that specifically labelled as “climate finance” corruption-related risks largely depend on the represents only a small part of the resource flows nature of the investment in particular sectors and which may have an impact on “climate-smart countries, arguing that it may be easier to track development”. project-based loans than budget support in some countries (Werksman 2010). Supporting this At the national level, for example, international argument, a 2014 study that looks at 12 EU funding commitments made within the framework budget support programmes focused on of the UNFCCC contribute to public budgets in environmental and climate mitigation found that relevant areas, such as forest conservation, delays in disbursement were experienced in all renewable energy, flood defence and agricultural but one of the 12 programmes despite having development, but represent only a subset of established disbursement timeframes. The study overall public spending in these relevant sectors. also found performance assessment of the use of There are also other public and private the funds was generally lacking due to limited investments and contributions to these sectors monitoring and, when applied, performance which may not have a specific climate-related aim (Forstater & Rank 2012). www.U4.no U4 EXPERT ANSWER 4

Corruption risks and mitigating approaches climate finance monitoring arrived in later portions of the depends on the specific context of each country, programmes (Bird & Ferrandes 2014). as the funds are exposed to corruption risks at country level. The national governance and institutional context may be key to determine whether budget support A relevant case study is that of the Bangladesh is an appropriate option, to identify country- Climate Change Trust Fund (BCCTF), established specific risks and to develop effective strategies to in 2009 to allocate a portion of the national address these risks. Among other Bangladeshi budget. Transparency International recommendations, the report by Werksman Bangladesh investigated the execution of the stresses the importance of understanding the funds on cyclone resistant housing in the southern political economy in each country to identify coastal region of Bangladesh and found that the various stakeholders’ incentives and develop project had not been completed more than a year effective risk-mitigating strategies. after the funds had been allocated (Transparency International Bangladesh 2012). The Bangladeshi Lessons learned from risk management government reacted to the investigation by approaches in development aid and humanitarian finishing the housing and pledging to incorporate assistance (see Johnsøn 2015) could help to many of the recommendations proposed (Kahn improve understanding of the corruption risks 2014), although government support for the fund associated with various funding mechanisms and subsequently tailed off and significantly less funds modalities in climate finance. were allocated to the fund in the years following (Ministry of Forests and the Environment of New, complex and largely untested funding Bangladesh 2016). architecture There is a growing interest in “direct access” The institutional set-up used to raise and allocate funds, channelled through accredited national climate funds may also have an impact on entities rather than through multinational corruption risks, based on the accountability, development banks to implement adaptation transparency and integrity mechanisms in place in projects. Direct access permits donors to bypass the various institutions involved. At present, it is intermediaries, guaranteeing national access to composed of a complex web of international and funds, and yet uphold governance standards national institutions, mechanisms and policies through verified accreditation schemes (Schäfer & (Forstater & Rank 2012). Kreft 2014). The Adaptation Fund, for example, operates almost exclusively through direct access, A number of new and existing institutions at the while the Green Climate Fund (GCF) developed international and national levels are being used or “enhanced direct access” in 2014, a modality that created for managing the billions of dollars at works through national gateway intermediaries to stake in climate finance. These include the Global finance projects in areas the GCF considered Environmental Facility, the Climate Investment strategic in the country, but that are ultimately Funds, the Adaptation Fund the UN-REDD+ chosen by national and local representatives programme, as well as multilateral development (Müller 2014). banks, international finance institutions, bilateral institutions, the Clean Development Mechanism This approach can present a set of context- and, most recently, the Green Climate Fund. specific corruption and governance challenges, and presently, many countries have not been able Resources can be channelled directly to national to access these types of funds due to their lack of institutions in recipient countries or through necessary fiduciary safeguards. Many institutions bilateral or multilateral implementing agencies. that have been accredited note that access to Some recipient countries, such as Bangladesh, funds has been facilitated through direct access, Brazil, China, Ecuador, the Maldives and but found the accreditation process arduous and Thailand, among others, have also set up national time consuming and received limited guidance funds, some administered by the UNDP (Forstater from accreditation bodies (Masullo et al. 2015). & Rank 2012). International architecture When new institutions are being established, this can present an opportunity to hold them to There are various levels of governance standards international standards of transparency and and integrity management systems in place in integrity, such as in the case of Poland’s EcoFund international institutions, which are likely to have or the Brazilian Amazon Fund (Werksman 2010). an impact on each institution’s ability to However, the success of such approaches largely adequately prevent and address corruption risks. www.U4.no U4 EXPERT ANSWER 5

Corruption risks and mitigating approaches climate finance Transparency International (Elges & Martin 2014) 2016). Nevertheless, criticisms have been made conducted a mapping and assessment of the anti- regarding restrictions to those entitled to file corruption accountability framework and formal complaints and delays in operationalising safeguards of six multilateral climate funding these concepts (Richard 2016). There are also initiatives: the Adaptation Fund, Climate some concerns among the policy community that, Investment Funds, the Special Climate Change given its small staffing levels, the GCF will be Fund, the Least Developed Countries Fund, the forced to outsource many of its tasks and Forest Carbon Partnership Facility and UN-REDD. responsibilities, reducing oversight and increasing The study found that none of the funds have a the risks of illicit or unethical behaviour (Shiuna comprehensive, fund-wide zero-tolerance for 2015). corruption policy and tend to depend on a complex system of policies that leaves room for National institutional set-up confusion regarding accountability (Elges & Martin 2014). The assessment also found the funds The governance and institutional framework of generally lacked clear accountability mechanisms both donors and beneficiaries is a key for decision-making processes or sanctions for determinant of opportunities for rent-seeking, and unethical or corrupt behaviour. the close involvement of the public sector may act as a facilitating or inhibiting factor for corruption, More recent studies have focused on quality depending on the country and local contexts management related to transnational climate (Werksman 2010). In many countries, domestic governance initiatives. A report from the sources of funding constitute significant portions University of Zurich analysed 109 such initiatives of climate finance: in Tanzania, for example, the from 2005 to 2015 and found that 45% of them ODI estimates that between 2008 and 2011, 59% lacked any type of monitoring and evaluation of funds destined for mitigation and adaptation system to assess results. Quality control of these came from internal state or private sources rather initiatives is necessary for institutions and than international funds (Bird 2014). governments to be held accountable for the execution of climate finance funds (Michaelowa & It is also of crucial importance to understand the Michaelowa 2015). complex network of national actors and institutions involved, in particular how the The Green Climate Fund (GCF) is an interesting stakeholders and institutions responsible for case study to illustrate these challenges. The climate finance decision making and GCF requires participating countries to nominate, disbursement relate to each other, and what provide a legal opinion on, and maintain a national integrity and accountability systems they have in designated authority (NDA) to act as an interface place. between the GCF and national governments. In turn, the NDAs play a key role in identifying and Two recent reports observe a similar vetting bodies seeking to become “direct access accountability gap between how climate finance is entities” able to draw on resources from the fund generated and delivered at the international and (Green Climate Fund 2015). The aim of this how it is disbursed at the national and local levels. accreditation process is to ensure that accredited entities are able to manage GCF resources in line Firstly, Transparency International’s Climate with the highest fiduciary standards as well as Finance Integrity Programme conducted an anti- monitor and mitigate any environmental or social corruption and governance assessment of climate risks their projects may entail (Green Climate finance in six countries (Bangladesh, Dominican Fund 2015). Republic, Kenya, the Maldives, Mexico and Peru) (Transparency International 2013). The report Furthermore, in 2014, the GCF established the highlighted that contradictory financial information Independent Redress Mechanism with the aim of is supplied by various sources (from government assessing GCF operations, as well as addressing ministries, donor websites and tracking initiatives complaints by recipient countries and local such as Climate Funds Update) in the countries stakeholders. It also formed the Independent analysed. The authors also note obstacles in Integrity Unit to investigate fraud and corruption distinguishing climate finance from other budget (Green Climate Fund 2014). These accountability lines and note the difficulty in tracking and mechanisms have been viewed as a step forward overseeing finance flows. in international climate finance as they permit beneficiaries to file complaints, which should help Secondly, a report from the World Resources promote more accountability at the project Institute and Oxfam tracked adaptation funding evaluation and disbursement stages (Richard between 2008 to 2013 in the Philippines, Nepal, www.U4.no U4 EXPERT ANSWER 6

Corruption risks and mitigating approaches climate finance Zambia and Uganda (Terpstra et al. 2015) found of funds between and within countries, including that while information about climate finance was the generation, distribution and allocation of available on request, the information tended to be funds; the corrupt actions involving the execution in aggregate form or was too incomplete to allow of these funds; and the monitoring and verification the finance to be tracked with any degree of of results. accuracy Lobbying, state and policy capture For more information on national set-ups, please see the 2014 query response corruption risks and New institutions, laws and policies are being mitigating approaches in climate finance. developed for climate finance. Early evidence presented in Transparency International’s Global Local institutional set-up Corruption Report suggests that there are many grey areas and loopholes that could be exploited The role of local governments in channelling by corrupt interests. This risk of policy capture is climate finance is also of crucial importance. exacerbated by the level of complexity, novelty Global Witness suggests that, when used and uncertainty associated with many climate appropriately with stringent financial safeguards, issues and the fact that climate change and allowing sub-national and local entities to directly finance are complex areas to engage with access funds and bypass national governments (Transparency International 2011). The highly may be an effective way for financial flows to technical nature of climate adaptation and reach project-level activities and reduce mitigation work makes it easier for a small number misallocation at the national level (Global Witness of experts and vested interests to control and 2012). potentially distort information and the policy debate. A 2013 paper by the WRI provides some insight into experiences in Nepal and the Philippines, as There is ample evidence to suggest extensive both countries emphasised climate finance lobbying by the fossil fuel industries within transparency and accountability provisions at the international policy circles (Schalatek & Fuhr local level. Nepal, through its 2011 Climate 2012). Numerous organisations have spoken Change Policy vowed to spend 80% of climate aid about the influence of fossil fuel lobbies and the at the local level. As a complimentary action, lack of transparency governing lobbying Local Adaptation Plans of Action (LAPAs) were worldwide (Transparency International 2011). established to increase citizen participation at the Some argue that fossil fuel lobbying has local level and to establish firm accountability essentially captured international climate policy, mechanisms in adaptation fund management steering the international community towards (Terpstra et al. 2013). Experiences in the carbon trading and adaptation rather than Philippines were similar, where climate change mitigation initiatives that would mean a loss of the adaptation planning is being mainstreamed into energy market share (Whitington 2012). This is the local development planning process. Local echoed by recent reports by Corporate government units are mandated by national Accountability International (2015) and Corporate legislation (The Climate Change Act) to align local Europe Observatory (Sabido 2015) which claim development plans with the National Climate that the topics and approaches to address climate Change Action Plan. (Terpstra et al. 2013). finance at COP21 have been heavily influenced by the fossil fuel lobby. Research thus far has primarily focused on the international and national levels, and the local A worrying trend in international climate finance is architecture for managing climate finance has not the concept of “concession for aid”, whereby received enough attention to date, which bilateral public and private donations are constitutes a major knowledge and research gap approved on a basis of advantages to the donors (Global Forum 2013). At the same time, a lot of rather than perceived need. A form of policy money is spent locally on smaller-scale projects, capture, there is some evidence of developing emphasising the need for studies at this level. countries permitting tax breaks or relaxing regulation in exchange for climate aid or disaster 2. Evidence of corruption in climate relief assistance (OECD & Climate Policy Initiative finance and programming 2015). Corruption risks related to climate finance is generally discussed in three categories: the flow www.U4.no U4 EXPERT ANSWER 7

Corruption risks and mitigating approaches climate finance Bribery, clientelism and cronyism many sub-contractors, and are highly complex and technical, making procurement processes Adaptation planning and implementation easy to manipulate through bribery, collusion between industry stakeholders, kickbacks in Of the dedicated climate finance initiatives the management of contracts, etc. monitored by Climate Funds Update, 24% of the • appointments of staff managing and funding since 2003 has gone towards adaptation implementing adaptation projects, such as (Canales Trujillo et al. 2015). Of this, 76% is members of supervisory boards and destined to 20 countries considered to be committees managing resources, may also be “vulnerable” to climate disasters or with poorly vulnerable to nepotism, patronage and developed national government infrastructures clientelism, and “selling” positions with high (Canales Trujillo et al. 2015). The GCF aims to rent-seeking potential allocate at least half of its resources to adaptation • petty bribery: there are also many in countries that are particularly vulnerable to the opportunities for petty bribery in the delivery of impacts of climate change. These countries will essential services such as water, food and include least developed countries (LDCs), small- health services to local communities island developing states (SIDS) and African states (Green Climate Fund 2015). The current lack of oversight mechanisms in adaptation finance has been identified as a cause There are many opportunities for nepotism and of concern in a number of countries. TI cronyism in the process of identifying and Bangladesh, for example, has tracked adaptation prioritising adaptation plans and deciding which finance since 2012 and asserts that all of the projects to allocate funding to. Many decisions public and private funds related to climate change need to be made with regard to resource adaptation in Bangladesh between 2012 and 2015 allocation, location and beneficiaries of projects, lacked appropriate anti-corruption and conflict of establishment of management structures, interest processes (Khair 2015). appointment of staff, selection of technologies, procurement processes, etc. The lack of sufficient integrity mechanisms offers opportunities for illicit and unethical behaviour. In Corruption can affect the decision-making process the Maldives, for example, corrupt officials in the and can occur at all stages of project design and government treasury and National Disaster implementation. In particular, high-level actors, Management Centre embezzled US$1.6 million political elites, and powerful national and from funds designed to help the country recover international companies may capture the process from the 2004 tsunami and better protect itself through corrupt means to ensure that from climate-related events in the future (Shiuna programmes benefit certain groups and vested 2015). interests at the national and international level (UNDP 2011). Mitigation planning and implementation Such forms of corruption may involve (Chêne Corruption risks in mitigation activities are not 2014): fundamentally different from the forms of corruption that can occur in adaptation • bribery, nepotism and clientelism resulting in programmes, as they also involve major plans favouring specific interest groups rather investments in large infrastructure projects and than areas of greatest need, such as land strategic technological choices which are all owners seeking priority for particular regions vulnerable to policy capture, bribery, nepotism, patronage and clientelism. • rent-seeking and abuse of discretion in the implementation of funds, giving priority to Corruption in the allocation of national mitigation infrastructure projects with greater funds, especially related to forestation initiatives is opportunities for bribery well documented in Indonesia, for example. The Centre for International Forestry Research • fraud and collusion to ensure favourable (CIFOR) describes the case of Indonesia where, treatment, such as provision of inaccurate or around US$600 million was stolen from incomplete information by industry groups to Indonesia’s “reforestation fund” in the mid-1990s ensure the adoption of specific technologies, (Barr et al. 2010; see also CIFOR 2016). funding of research to support specific approaches and methods, etc. However, there is a specific set of corruption and governance challenges associated with newly • corruption in procurement processes of large infrastructure projects, which typically involve www.U4.no U4 EXPERT ANSWER 8

Corruption risks and mitigating approaches climate finance developed incentive-based mechanisms, such as 3. Good practices in corruption risk the initiative for Reducing Emissions from mitigation for climate finance Deforestation and Forest Degradation (REDD), which are meant to directly link market/financial Regulating and monitoring lobbying practices incentives to the reduction of greenhouse gas emissions resulting from deforestation and forest It is key to understand how the various groups of degradation. stakeholders interact and to what extent they influence mitigation and adaptation policies. Only Previous queries, overview of corruption risks in a few countries have mandatory lobbying REDD+ in the Congo Basin, and Mozambique: registries that allow researchers to track and overview of corruption and anti-corruption identify money flows poured into lobbying consider how REDD+ can be susceptible to activities to influence the climate change policy corruption. In Mozambique, for instance, debate (Despota 2011). monitoring inspections were “relaxed” through bribes, and private logging companies illegally Direct tracking of expenditures enables the harvest timber on REDD+ protected land, selling comparison of spending by various interest their products through illicit means (Martini & groups and helps identify the respective weight of Albisu Ardigo 2014). various businesses and stakeholders in shaping climate change policies. Proving “additionality”, that is reductions in emissions that would not have taken place without For example, the Centre for Public Integrity additional support, is particularly challenging. documented spending and lobbying activities Experience with the Clean Development undertaken by various groups in the US in the Mechanisms (CDM) indicates that, in practice, the run-up to a Congress policy debate on climate concept of additionality is difficult to prove and change legislation (Lavelle 2009). In countries monitor, with several studies confirming that many where there is no mandatory registry of lobbying projects under consideration should not have activities, researchers can use other methods to been awarded additionality status, as they would assess the influence of businesses and other have been carried out anyway and therefore will groups in shaping climate change policies, such not yield additional emissions (Dobson 2015). as participation in open stakeholder meetings and documentation of the policy development process Several cases of corrupt or unethical behaviour through the review of communications relating to have surged from mitigation finance. The draft legislation. newspaper El Universal discovered that after the Mexican government approved the General Active engagement by civil society can help to Climate Change Law, tourism companies based balance the representation of interests in policy on the Caribbean coast lobbied the government to discussions and monitor lobbying practices. reduce the rate of implementation of new Ahead of the Paris COP21 talks and agreement, mitigation policies so that the tourism industry the organisation Corporate Europe Observatory would not suffer from these actions, despite most published two reports to assist participants and of these projects being centred on vulnerable civil society actors to better participate in the talks population centres (Varillas 2015). and monitor lobby actions around the talks. In another case, TI Bangladesh uncovered an The first report, titled “The Corporate Cookbook”, alleged bid rigging scheme where non- reviewed how lobbying influenced the debates governmental organisations belonging to public around the talks, and informed decision makers of authorities won million dollar contracts to build an alternative viewpoints that should be considered emergency reserve bio-gas plant. This last case during the talks (Sabido 2015). The second involved forging signatures and falsifying identities document, Lobby Planet Paris: A Corporate Guide to embezzle a work fare program related to the to COP21, provided a guide to corporate lobbying building and maintenance of the bio-gas plant at Paris COP21, outlining where lobbying takes (Khair 2015) place, the messages that will be used to “override” topics of discussion, and the corporate sponsors of events at COP21 (Corporate Europe Observatory, Aitec, & Attac France 2015). www.U4.no U4 EXPERT ANSWER 9

Corruption risks and mitigating approaches climate finance (Transparencia Mexicana 2015) and by Grupo de Financiamiento Climático para América Latina y el Assessing governance and anti-corruption Caribe, which has started tracking international management systems of the various finance climate finance destined for Peru, Ecuador, mechanisms Argentina and Chile, as well as domestic finance within all four countries (Grupo de Financiamiento Anti-corruption safeguards should be integrated Climático para América Latina y el Caribe 2016). into the design of adaptation and mitigation interventions, and into the core structures of Research should also focus on tracking climate policies and institutions (Transparency developed country pledges for climate funding, International 2011). While multilateral and bilateral and assessing whether commitments made are institutions already have mechanisms in place, “new and additional” to commitments made as these should include assessing whether the part of official development assistance. For various bodies tasked with managing climate example, WRI compiled a summary of developed finance have adequate safeguards to ensure country fast-start climate finance pledges, transparency and accountability of climate focusing on tracking and reporting on pledges funding. There are signs that many international made by donor countries (WRI 2012). In the finance institutions are becoming more committed aftermath of the COP21, there is a greater need to improving internal management systems to for this than ever. increase transparency and accountability, as demonstrated by a review of reporting Measuring the success and effectiveness of requirements of the UNFCCC in 2012 and the climate funding is also an important field of establishment of the Independent Redress research. While initiatives to track finance have Mechanism by the Green Climate Fund. proliferated, an effective system to track results is still lacking. The Paris Agreement included a Ensuring transparency in financial flows commitment to establish a “capacity building initiative for transparency” which would effectively Financial flows related to climate finance can be help developing countries improve on misrepresented in a variety of ways, with the transparency in climate change action. Similarly, a possibility of double counting and risks of over- multi-stakeholder project, the Initiative for Climate representing climate-related spending. There are Action Transparency (2016) is trying to do the a number of existing tools to track and present same. climate financing commitments and disbursement, such as the Voluntary REDD+ database As per best practices, ODI has developed an (www.reddplusdatabase.org), the Climate Funds approach to measuring the effectiveness of the Update (www.climatefundsupdate.org), the national systems underlying public finance Adaptation Fund registry delivery, looking at three dimensions of (www.iatiregistry.org/dataset/af-14) and major government administration: 1) the policy donors’ climate finance contributions environment supporting climate change (www.publishwhatyoufund.org/). With regard to expenditures, from the formulation of climate- REDD+, Global Witness recommends the related policies to spending through national consolidation of existing databases into a single strategies and action plans; 2) the institutional financial tracking and reporting system consistent architecture and different roles and responsibilities with the OECD Credit Reporting System (Global of various government institutions involved in Witness 2012). managing climate funding; and 3) the public financial management system through which Global Witness and Publish What You Pay climate change expenditures are channelled (Bird recommend adopting the International Aid et al. 2013). Transparency Initiative best practice on aid flows for adaptation and mitigation flows (Global Ensuring ownership, transparency and Witness 2012; Forstater & Rank 2012). This participation in climate finance decision- voluntary, multi-stakeholder initiative offers a making processes useful shared standard to make information about aid spending easier to find, use and compare. Strengthening civil society participation and empowering citizens to engage with the climate In a similar way, some national initiatives have change agenda is crucial for climate governance. been developed to track national financial Involving civil society organisations (CSOs) in commitments and spending related to adaptation decision-making processes and in evaluation and mitigation projects. Notable examples of committees could improve accountability and these include an initiative by Transparencia Mexicana to map federal and state finance www.U4.no U4 EXPERT ANSWER 10

Corruption risks and mitigating approaches climate finance increase transparency (Global Witness 2012) as National Employment Guarantee Fund in India, well as shedding light on corruption and fraud and have incorporated “social audits” where civil highlighting urgent adaptation or mitigation needs society organisations are called on to evaluate the (BothENDS, 2015). implementation and performance of adaptation initiatives (Sharma, Müller, and Roy 2015). International climate finance initiatives tend to provide opportunities for civil society to participate In the Maldives, the National Planning Council in consultations at the programme development was formed with multi-stakeholder representation and approval stage. For example, the Green from government, the private sector and civil Climate Fund, which decided as part of its society to appraise and approve all development information and disclosure policy to webcast its projects, including climate change projects. board meetings, has an active civil society Decisions were publically disclosed, and included network that channels feedback on project in a weekly-updated list of all projects submitted proposals through two elected CSO observers (Ministry of Housing and Environment of Maldives (Green Climate Fund 2016). 2010). Another initiative aiming to increase participation In Kenya, the Transparency International national in international climate governance is the chapter is an official civil society observer to the WorldWideViews on Climate and Energy Project. National Implementing Entity of the Adaptation In advance of the COP21 talks, WWViews carried Fund, providing guidance on good governance out an international consultation, producing an reforms and project implementation aggregate report on world citizens’ opinions on (Transparency International Kenya 2015). subjects including climate finance which was presented during the COP21 (Global Coordinator There are other instances of targeted monitoring of WWViews 2016). by civil society networks. The German Watch Adaptation Fund network (German Watch 2016) is While international funds generally have some a coalition of non-governmental organisations channels for civil society participation, multi- which aims to track the development and projects stakeholder platforms with guaranteed civil society of the Adaptation Fund. Worldwide, however, civil participation are often lacking at the national level society participation in accountability frameworks (Khan 2014). Civil society engagement is key to for climate finance remains the exception rather ensure that the participation of intended than the norm. beneficiaries and indigenous people is built into the project design and monitored throughout the In light of this, other initiatives to increase the project lifecycle. Transparency International, profile of and transparency in climate finance, alongside the Adaptation Watch network, is such as the Climate Parliament, are to be developing a participatory multi-stakeholder welcomed. With more than 700 legislators from 70 approach to develop a governance standard for countries, the Climate Parliament meets to climate adaptation finance. Results of preliminary discuss issues related to climate change – piloting of the approach in Nepal, Bangladesh and including mitigation and adaptation finance – to the Maldives is due to be published later in 2016. develop concerted environmental policies at the international level (Climate Parliament 2016). Dispute redressal mechanisms and whistleblower protection also have an important part to play in Finally, there is a need to foster better improving ownership and accountability at the coordination between climate finance local level in climate finance projects. Dispute stakeholders and organisations that focus on redressal measures are intended to complement, improving governance and providing oversight, not replace, formal legal channels for managing such as government anti-corruption agencies, grievances. audit institutions law enforcement and parliaments to ensure the success of climate finance A promising development in this area is the GCF’s initiatives. Independent Redress Mechanism, which permits beneficiaries to file complaints against GCF Kenya’s REDD+ Integrity Task Force, which is projects which violate the GCF’s social and composed of civil society representatives, environmental safeguards (Richard 2016). indigenous communities and government bodies, is a good example of this approach in action Monitoring and evaluation is also a key area in (UNDP 2014). The taskforce works to identify and which CSOs can contribute to climate mitigate potential corruption risks in the governance. National adaptation funds, like the implementation and payment of REDD+. It also www.U4.no U4 EXPERT ANSWER 11

Corruption risks and mitigating approaches climate finance provides guidance on stakeholder engagement, BothENDS. 2015. Feasibility report on the legislation, codes of conduct, reviews of grievance Strengthening of Citizen-Based Complaint Review mechanisms, financial matters and guidelines on and Referral Mechanisms Under the Green free, prior and informed consent (UNDP 2014). Climate Fund (Publication). https://www.transparency.org/files/content/activity/ Support for such initiatives by donor and 2015_BriefingGCFComplaintMechanisms.pdf implementing bodies when launching new projects and disbursing money can be a powerful means Buchner, B. et al. 2011. Monitoring and Tracking of reducing fraud and embezzlement from Long-Term Finance to Support Climate Action. programmes designed to protect vulnerable OECD. communities. http://www.oecd.org/env/cc/48073739.pdf 4. References Burgess, R., M. Hansen, B. Olken, P. Potapov and S. Sieber. 2011. The Political Economy of Adaptation Watch. 2015. Toward Mutual Deforestation in the Tropics, London School of Accountability: The 2015 Adaptation Finance Economics, available from: http://econ- Transparency Gap Report (Rep.). Available here. www.mit.edu/files/6632 Baral, P., & Chhetri, R. 2014. Finding the Money: Canales Trujillo, N., Watson, C., Caravani, A., A Stock Taking of Climate Change: Adaptation Barnard, S., Nakhooda, S., Schalatek, L., & ODI. Finance and Governance in Nepal (Publication). 2015. Climate Finance Thematic Briefing: https://policy- Adaptation Finance (Climate finance practice.oxfamamerica.org/static/media/files/Nepa fundamentals, Rep. No. 2). London: Overseas l_AFAI_Stocktaking_Report_Final.pdf Development Institute. https://www.odi.org/sites/odi.org.uk/files/odi- Barbier, E. and Anteneh T. Tesfaw. 2013. “Tenure assets/publications-opinion-files/9325.pdf Constraints and Carbon Forestry in Africa.” American Journal of Agricultural Economics 964- Centre for International Forestry Research. 2016. 975. Analysing multilevel governance in Indonesia: Lessons for REDD+ from the study of landuse Barr, C. 2011. “Governance Risks for REDD+: change in Central and West Kalimantan. CIFOR How Weak Forest Carbon Accounting Can Create Working Paper 202. Opportunities for Corruption and Fraud.” In Global http://www.cifor.org/library/6058/analyzing- Corruption Report: Climate Change, edited by G. multilevel-governance-in-indonesia-lessons-for- Sweeney, R. Dobson, K Despota and D. redd-from-the-study-of-landuse-change-in-central- Zinnbauer. and-west-kalimantan/ http://www.transparency.org/whatwedo/pub/global _corruption_report_climate_change Chêne, M. 2014. Corruption Risks and Mitigating Approaches in Climate Finance. U4 Helpdesk Bird, N., & Ferrandes, F. 2014. Review of EU Answer. Experience, Best Practices and Lessons Learned http://www.transparency.org/whatwedo/answer/co in the Field of Environment and Climate Change rruption_risks_and_mitigating_approaches_in_cli through the Aid Modality of Budget Support. mate_finance Global Climate Change Alliance. http://www.gcca.eu/sites/default/files/gcca_review Chêne, M. 2010. Corruption, Auditing and Carbon _of_budget_support_- Emission Reduction Schemes. U4 Helpdesk _final_technical_report_pdf_0.pdf Answer. http://www.transparency.org/whatwedo/answer/co Bird, N. 2014. Fair Share: Climate Finance to rruption_auditing_and_carbon_emission_reductio Vulnerable Countries (Publication). London: n_scheme... Overseas Development Institute. https://www.odi.org/publications/8517-fair-share- Climate Funds Update. 2016. Data. Retrieved climate-finance-vulnerable-countries-ethiopia- August 18, 2016, from uganda-tanzania http://www.climatefundsupdate.org/data Climate Parliament (UK). 2016. Climate Parliament - Home. http://www.climateparl.net/policy-reports www.U4.no U4 EXPERT ANSWER 12

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Corruption risks and mitigating approaches climate finance Kahn, M. H. 2014. Bangladesh: Cutting off Our Lindner, S. 2014. Overview of Corruption Risks in Heads to Cure a Headache? Retrieved August 19, REDD+ in the Congo Basin (Publication). 2016, from Retrieved August 16, 2016, Transparency http://blog.transparency.org/2014/07/03/banglade International Anti-Corruption Helpdesk. sh-cutting-off-our-heads-to-cure-a-headache/ http://www.transparency.org/files/content/corruptio nqas/Corruption_risks_in_REDD+_in_the_Congo Kenny, C. 2006. Measuring and Reducing the _Basin_2014.pdf Impact of Corruption in Infrastructure. World Bank Policy Research Working Paper 4099. Loris, N. 2009. Cap and Corruption: The Fraud http://siteresources.worldbank.org/INTINFNETWO Behind Carbon Reduction Targets. Heritage RK/Resources/wps4099.pdf Foundation Notes. http://dailysignal.com/2009/05/12/cap-and- Kenny, C. 2007. Construction, Corruption, and corruption-the-fraud-behind-carbon-reduction- Developing Countries. World Bank Policy targets-part-7-in-a-10-part-series/ Research Working Paper 4271. https://openknowledge.worldbank.org/bitstream/h Mapping of Accountability Lines and Anti- andle/10986/7451/wps4271.pdf?sequence=1&isAl Corruption Performance of Six International lowed=y Institutions (working title). UNDP. 2011. Staying on Track: Tackling Corruption Risks in Climate Khair, S. 2015. Corruption Risks in National Finance. Climate Finance: The Bangladesh Experience. http://www.undp.org/content/undp/en/home/library Lecture presented at Conference of Parties (COP) page/democratic-governance/anti- 21, Paris. corruption/staying-on-track--tackling-corruption- http://carbonmarketwatch.org/wp- risks-in-climate-change.html content/uploads/2015/11/Corruption-risks-in- national-climate-finance-The-Bangladesh- Martini, M & Albisu Ardigo, I. 2014. Mozambique : experience.pdf Overview of Corruption and Anti-Corruption. U4 Helpdesk Answer. Khan, M. H. 2014. Transparency and http://www.transparency.org/files/content/corruptio Accountability in Climate Finance Governance for nqas/Country_Profile_Mozambique_2014.pdf the Most Vulnerable in Bangladesh: A Focus on Local Level Governance (Tech. No. CCG PB 14- Masullo, I., Larsen, G., Brown, L., & Dougherty- 004). Choux, L. 2015. \"Direct Access\" to Climate http://www.icccad.net/wp- Finance: Lessons Learned by National content/uploads/2014/07/CCG_Policy-Brief_July- Institutional (Working paper). 2014.pdf http://www.wri.org/sites/default/files/22DIRECT_A CCESS_TO_CLIMATE_FINANCE_LESSONS_LE Klein, R. 2011. Show Me the Money: Ensuring ARNED_BY_NATIONAL_INSTITUTIONS.pdf Equity, Transparency and Accountability in Adaptation Finance, in Transparency Michaelowa, K., & Michaelowa, A. 2015. International’s Global Corruption Report, Transnational Climate Initiatives: An Alternative http://www.transparency.it/upload_doc/GCR_clim Way to Climate Change Mitigation? (Publication). ate_change.pdf Retrieved August 16, 2016, Center for Comparative and International Studies (CIS), Kumar, S. 2015. Green Climate Fund Faces Slew University of Zurich. of Criticism. Nature, 527(7579), 419-420. http://wp.peio.me/wp- http://www.nature.com/news/green-climate-fund- content/uploads/PEIO9/102_80_1439414773262_ faces-slew-of-criticism-1.18815 MchaelowaiMichaelowa3August2015.pdf Lavelle, M. 2009. A Case of Lowered Ministry of Forests and the Environment of Expectations in the US. Bangladesh. 2016. Climate Change Trust Fund http://www.publicintegrity.org/environment/climate/ (CCTF). Retrieved August 20, 2016, climate-change-lobby/global-climate-change- http://www.bcct.gov.bd/index.php/trust-fund lobby/ www.U4.no U4 EXPERT ANSWER 14

Corruption risks and mitigating approaches climate finance Ministry of Housing and Environment of Maldives. Richard, V. 2016. Injecting Justice into Climate 2010. National Economic Environment Finance: Can the Independent Redress Development Studies (Rep.). Retrieved August Mechanism of the Green Climate Fund Help? In 25, 2016, Ministry of Housing and Environment of 2016 Berlin Conference on Transformative Global Maldives. Climate Governance “après Paris”, Session: A https://unfccc.int/files/adaptation/application/pdf/m New Institutional Landscape Après Paris? aldivesneeds.pdf http://papers.ssrn.com/sol3/papers.cfm?abstract_i d=2796463 Müller, B. 2014. What is EDA? A Rough Guide to Enhanced Direct Access (Publication). Sabido, P. 2015. The Corporate Cookbook: How http://www.eurocapacity.org/downloads/EDAGuid Climate Criminals Have Captured COP21 efinal.pdf (Publication). http://corporateeurope.org/sites/default/files/attach Nakhooda, S., Watson, C., & Schalatek, L. 2015. ments/the_corporate_cookbook.pdf The Global Climate Finance Architecture (Climate Finance Fundamentals, Rep. No. 2). London: Schalatek, L., & Fuhr, L. 2012. The “Doha Climate Overseas Development Institute. Gateway”: Will the Camel Go through the Eye of http://www.climatefundsupdate.org/about-climate- the Needle? (Publication). fund/global-finance-architecture http://www.boell.de/sites/default/files/assets/boell. de/images/download_de/HBF_Doha_Outcome_A OECD. 2011. Handbook on the OECD-DAC nalysis(1).pdf Climate Markers. Paris: OECD. https://www.oecd.org/dac/stats/48785310.pdf Schäfer, L., & Kreft, S. 2014. Learning from Direct Access Modalities in Africa (Publication). OECD and Climate Policy Initiative. 2015. https://germanwatch.org/en/download/10350.pdf “Climate Finance in 2013-14 and the USD 100 Billion Goal (Rep.)”. Retrieved Schloss, M. 2016. Climate Change: Moving the http://www.oecd.org/environment/cc/OECD-CPI- Paris Agreement from Words to Deeds. Journal of Climate-Finance-Report.htm Business, 1(6). http://journalofbusiness.us/index.php/site/article/vi Pauw, W. P., Klein, R. J., Vellinga, P., & ew/38/18 Biermann, F. 2015. Private Finance for Adaptation: Do Private Realities Meet Public Sharma, A., Müller, B., & Roy, P. 2015. Ambitions? Climatic Change, 134(4), 489-503. Consolidation and Devolution of National Climate 10.1007/s10584-015-1539-3. Finance: The Case of India. European Capacity Building Initiative. Peterson Carvalho, A., & Terpstra, P. 2015. http://www.oxfordclimatepolicy.org/publications/do Tracking Adaptation Finance: An Approach for cuments/Consolidation_and_Devolution_final.pdf Civil Society Organizations to Improve Accountability for Climate Change Adaptation Shiuna, M. 2015. “Corruption Threatens Progress (Publication). on Climate Change: Here’s How to Stop It.” https://policy- http://www.independent.co.uk/voices/how-the- practice.oxfamamerica.org/static/media/files/adapt maldives-can-avoid-yet-another-corrupt-relief- ation-finance-final-web.pdf effort-in-the-face-of-climate-change- a6718416.html Pickering, J., Skovgaard, J., Kim, S., Roberts, J., Rossati, D., Stadelmann, M., & Reich, H. 2013. Terpstra, P., Peterson Carvalho, A., & Wilkinson, Acting on Climate Finance Pledges: Inter-Agency E. 2013. The Plumbing of Adaptation Finance: Dynamics and Relationships with Aid in Accountability, Transparency and Accessibility Contributor States (Working paper No. 1306). (Working paper). Canberra: Crawford School of Public Policy, http://www.wri.org/sites/default/files/adaptation- Centre for Climate Economic & Policy. finance-plumbing.pdf www.U4.no U4 EXPERT ANSWER 15

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